With the majority of flats, and a huge proportion of new build houses being leasehold opposed to freehold, it’s important to understand the difference when you’re looking to buy.
With a freehold property you own the property and the land it stands on indefinitely. This gives you full control over the property, including the right to make alterations and sell it.
In contrast, a leasehold means you own the property for a fixed term, usually between 99 to 999 years, but not the land itself. The land is owned by a freeholder (or landlord), and leaseholders pay ground rent and may need permission for significant changes. When the lease expires, ownership typically reverts to the freeholder unless extended. This can affect the property’s value and mortgage options, which is why it’s crucial to know what you’re getting yourself into.
Generally, older properties come with a leasehold term of several hundred years and have just a small fee to pay to the freeholder on an annual basis. On the other hand, many new flats and houses have a leasehold term of just 99 years which means that in 20 years or so; you may find that not many mortgage lenders are willing to lend on it which will in turn impact the property value.
Not only that, but some newer leaseholds can have huge monthly ground rent and service charges with some being in excess of £5,000 per year!
It’s important to note that leaseholds aren’t all bad. They often allow people to buy a property that they otherwise couldn’t afford if it were freehold. Everyone’s circumstances are different and it’s important to speak with an expert to find out if it’s right for you.
As highlighted the by Home Owners Alliance, the new government have pledged to reform the leasehold system and ‘bring the feudal system of leasehold to an end and to reinvigorate commonhold’.
This is just one part of the list of housing reforms that Angela Rayner, Secretary of State for Levelling Up, Housing and Communities, is set to introduce, such as:
- bans on no fault evictions
- Awaab’s law
- an increase in renters’ rights
- and of course 1.5 million new homes being all part of the plan to transform the housing market.
We will be discussing the reforms the Housing Secretary is set to make in our next newsletter, so make sure you’ve signed up by clicking here.
If you’ve already bought a leasehold property and would like to extend the lease, you can use the LEASE online calculator which is designed to give you a general estimate of the premium for a lease extension for a flat.
It’s important to note that they state the estimate is based on data available on a national level and does not take into account local factors that may impact on the premium.
If you have questions regarding leasehold properties, get in touch with our friendly team and they’ll be more than happy to help.
